Estimating university costs

[Maurice]

The wife and I have been revisiting our previous decision not to have kids. We still aren't decided 100%, but as things are trending that way and I'm a planner by nature, I'm starting to consider the impact on finances and ER should we go ahead and have a kid.


My question right now is about college expenses. Does anyone know of a good source of cost estimates for various 'tiers' of schools twenty years out? Or at least a place where I can find current costs and recent inflation rates.


Thanks in advance - and you can be sure I'll be back with 100 other questions if we decide to move forward.

[growing_older]

Haven't seen anything like you describe. There are quite a few that will display current costs for individual schools - you'd have to pick representative samples for tiers maybe. The best calculator I've seen was the one from the College Board (SAT people) which is:

College Cost and Tuition Calculator from the College Board

It projects future costs, but again, it's on you to estimate tuition increase rates. Also for planning purposes, 20 years is pretty far out. Will a Master's degree be required for professional occupations, much as a Bachelor's is now? Who knows. Also who know about your (not yet born or even sure to be) child's interests. Specialty school? Regular college? Ivy? Professional school? Too many variables. Not to mention financial aid formulas, which tend to treat income as more significant than retirement assets. Best you may be able to do is a broad average or maybe a general range.

Oh, forgot to mention what about schooling costs before college. Private schools or public? There's much variability in private schools before college, too if you decide to go that route.

[Sandy]

I have no idea how college will be priced or even delivered 20 years from now. In theory, the kids could all stay at home and enroll in a different school for each class, participating through a vitural classroom. Delivery and pricing are certainly connected.

If a state school is a possibility check to see if your state has a prepaid tuition plan. Some states, like FL, where I am, have a prepaid tuition plan for state schools (2 and 4 year). At birth (or any time there after) you can purchase a plan that covers tuition, fees, and/or room and board. I think the prepaid board anticipates only a 5-6% return to meet future value needs. (To digress: This places pressure on the legislature not to increase tuition because the prepaid program is very popular and the largest in the nation). If the child doesn't go to a state school, you can apply the future value of the funds to many other state and private schools (about 150), but, because FL has one of the lowest in state tuition rates in the nation those funds won't go too far elsewhere.

Otherwise, I think the best you can do is identify a reasonable school choice (alma mater, etc), look at historical inflation for the past 20 years and project forward using that inflation rate. The problem with this approach is that the past inflation rate had greatly exceeded general inflation and therefore is unsustainable in terms for affordability (like the housing market). There is where innovations in delivery models will come in, but if you can save that that higher rate, you should be fine.

[fisherman]

We are doing essentially what Sandy said. We happen to have a good local school so I just took the current cost and used an inflation factor of 7% for the number of years until they reach college to arrive at the cost then. If this turns out to be low then hopefully Lottery money(our state has a lottery and uses the proceeds to fund college grants) or scholarships will be an option for the difference. Of course they can work part time also as their parents did!

[TromboneAl]

There are so many variables that you shouldn't waste too much time trying to get an accurate estimate. Just choose a current amount and an inflation rate. My crystal ball says that college cost inflation can't remain above "regular" inflation for long.

Here are our costs (Washington Univ in St. Louis). The decrease is due to increases in scholarships related to decrease in income (aka retirement).

[donheff]

I agree with Al. Trying to evaluate in actual dollars is not helpful because your income and other expenses will go up at the same time. Better to look at current costs and assume that in inflation adjusted dollars college costs will be similar to or somewhat higher than they are today.

[FinanceDude]

Double the current rate of inflation, and it will be close........

[RetireeRobert]

Quote:

Originally Posted by Maurice My question right now is about college expenses. Does anyone know of a good source of cost estimates for various 'tiers' of schools twenty years out?

Google the websites for the state universities of your state. Their tuition and room/board info will be there. Google websites of state universities in neighboring states, and you can find non-resident tuition info.

Take you state university tuition rates and double them to approximate costs of private colleges.

Inflation CPI info also readily available---google "CPI Index".

Good luck. PS---don't put dollar signs on kids, bad way to make a decision to have them or not. Make that decision on non-financial basis.

[whitestick]

Quote:

Originally Posted by RetireeRobert Good luck. PS---don't put dollar signs on kids, bad way to make a decision to have them or not. Make that decision on non-financial basis.

Second that notion, also as an expression of sharing your love you may want to consider adoption as well. That is the route we chose and as our daughter told her friends while she was growing up "she felt sorry for them as their parents had to take them, but her parents chose to take her out of all of the thousands and thousands of kids in the world". Gotta say she turned out with a very level head on her shoulders. Only thing she tells us she misses is, that she wishes we had adopted more to give her more brothers and sisters.

[Trek]

You could try to get your kid into a public European university. Most are tuition-free or very low cost, even for international students.

Here is some info on studying in Sweden, just as an example:
Why Sweden? - SWEDEN.SE

[SecondCor521]

I agree with the other posters...there are too many variables, including include scholarships, grants, loans, tax benefits (Hope & LLC), college inflation rate, where they go to college, etc.

Personally I am targeting 4 years of tuition, room, board, and fees at the enrollment-weighted average 4 year public university, inflated at 6%. I get the number from the College Board's annual report (go to their website and poke around and you can find it). I think the number from 2007 is around $11K per year.

At the end of the day, millions of kids go to college and make it through even when their parents don't plan or save. Parents who have saved and planned will certainly be able to find ways to get their kids through.

My parents paid for whatever college we kids could get accepted to. I am not sure I am going to do the same with my kids. An alternative I am considering is to tell them they each get that $11K (or whatever it ends up being after inflation) and any surplus is theirs or any deficit is theirs to make up. I haven't decided for sure yet. What I will more likely do is get them all through college and if their is a net surplus at the end, divvy it up between the three of them in some proportionate way to their actual costs; if there is a net deficit I would probably just try to pay that off myself. At least having the savings there will give me more choices.

2Cor521

[Independent]

Well, if Johnny's smart enough for Harvard, it looks like you don't need to save anything ....

Quote:

This initiative builds on Harvard’s recent pathbreaking policies to ensure that families with incomes below $60,000 are not asked to contribute to the cost of sending their children to Harvard. ... Harvard’s new financial aid policy dramatically reduces the amount families with incomes below $180,000 will be expected to pay. Families with incomes above $120,000 and below $180,000 ... will be asked to pay 10 percent of their incomes. ... For those with incomes below $120,000, the family contribution percentage will decline steadily from 10 percent, reaching zero for those with incomes at $60,000 and below.

Harvard announces sweeping middle-income initiative — The Harvard University Gazette

Another thought is that you know colleges can't raise their prices to the point that hardly anybody can afford them. So if you are in "better shape than the average parents", you'll do okay.

But mostly I agree with some previous posters. There are a heck of a lot of more important things about having kids than financing college.

[donheff]

What do you call a windfall? Get your kid into Harvard while your income is way up there and you look like a self financing prospect. Then retire before school starts.

[bongo2]

Quote:

Originally Posted by Independent Another thought is that you know colleges can't raise their prices to the point that hardly anybody can afford them. So if you are in "better shape than the average parents", you'll do okay.

Sure they can, because they offer financial aid. The current philosophy is like the crooked mechanic in "vacation." When Griswald asks how much it will cost to repair the family truckster the mechanic says, "how much you got?"

College costs have trended considerably higher than inflation. The next 20 years? Who knows?

College tuition - Wikipedia, the free encyclopedia

[Sue J]

I use this - CNNMoney.com college cost finder.
College cost finder - CNNMoney.com

You can search by college names or by state and it will give you the current tuition cost (in-state and out of state) and approximate room and board. Public colleges and private colleges are listed.

I've used this quite a lot and learned that my state of Ohio subsidizes college costs less than many other states. No wonder the cost rises so much faster than inflation.

As for future costs....... you can count on them going up, most likely higher than you expected when you started planning. Oh, you don't even have kids yet!

[Maurice]

Quote:

Originally Posted by RetireeRobert PS---don't put dollar signs on kids, bad way to make a decision to have them or not. Make that decision on non-financial basis.

Oh, don't worry. This isn't about 'can we afford Johnny.' This is more "if we decide to have Johnny, what do I need to do"

Quote:

Originally Posted by RetireeRobert Good luck.

Thanks!

[Maurice]

Thanks for the helpful advice, everyone.

I agree one doesn't know what will happen in 20 years - indeed there are too many variables. But that doesn't mean you don't plan, you just make the best assumptions you can, and move forward on that basis.

Also I'll reiterate that this exercise of mine is not, repeat not being used as an input into the decision as to whether or not we have a kid. I'm just planning ahead because thats what we FIRE types do.

I'll share my approach, the results of my research, and my conclusions.

In my case, should we go ahead and have the kid, my approach will be to set aside a chunk of money that I estimate to be sufficient for 4 years of undergraduate education at an elite private school, 20 years hence. (key word here being "estimate"). Then if the kid should end up going to a public school (like his old man ) then, hey, I'll have an unexpected 'windfall' 20 years hence, or maybe I use it to fund grad school if the need arises. When I say "set aside", I mean I'll consider it to be 'off balance sheet' as far as my retirement savings go. I'll even exclude it from my asset allocation model, which has a different time frame and risk profile.


Here's what I found from my research:

Harvard Univeristy publishes an annual fact book that has a section about their own expenses in comparison with other elite institutions in the US. In this category they include the ivy league + Chicago, MIT, and Stanford. That seems like a good selection for me to use for my planning purposes. (yes, I know there are better deals to be had, I am myself a product of a state school, but I'm trying to plan for all options)


They list the costs for the 2007-2008 school year as follows: (this includes tuition, mandatory fees, and room and board)

Colombia - 44,812
Chicago - 44,613
U Penn - 44,212
Cornell - 43,757
Brown - 43,754
Harvard - 43,655
Stanford - 43,651
MIT - 43,550
Dartmouth - 43,341
Yale - 43,050
Princeton - 42,870


The average here is $43,750 per year, or right at $175,000 for 4 years.

Ok, now to come up with the proper inflation factor....


People here have argued that the real growth rate of tuition is not sustainable. I disagree. Unfortunately, I think its as sustainable as the trend towards increased income inequality, which is showing no signs of abating. I think we may see more schools take Harvard's approach, and have a sliding scale. But I'm not going to bank on that, plus there's a risk they'll take assets into account as well as income in which case I'd be paying the full amount anyway. Worst case I save too much.


In the same publication, Harvard lists its own inflation rate for tuition as follows:

20 year: 5.2%
10 year: 4.4%
5 year: 5.2%

Inflation (CPI-U) over those spans has averaged:

20 year: 3.1%
10 year: 2.55%
5 year: 2.63%


Thus the 20 year trend has been a growth rate of 2.1% over inflation, the 10 year trend has been 1.85% over inflation, and the 5 year trend has been 2.57% over inflation.

This applies to tuition only, but to be conservative I'll apply it to the whole amount.

These data suggest that I should plan for $265,000-300,000 in today's dollars, for 4 years of undergraduate education 20 years from now.

265,000 uses the average cost of those schools (175k) and the 20-year real growth rate (2.1%).

300,000 uses the highest cost (Colombia at 179,250) and the higher 5 year real growth rate.

So using my approach one would theoretically take 300k and set it aside in a low risk investment that would keep up with inflation.

My actual approach will be to set aside an equivalent amount of iBonds (which I already own) for this, taking into account that the iBonds grow at a rate higher than inflation. Assuming that my iBonds grow at inflation +1.2%, I could set aside around $235,000 worth.

The other advantage of using iBonds is that, under current policy anyway, the interest on them will be tax free, at least for the part that goes to tuition, as long as I can engineer an income below the cutoff those years, which I should be able to do in retirement.

Comments on my approach?

[Sue J]

It's great that you are planning ahead like that. It will be interesting to see what actual college costs turn out to be in 2028-2032.

When you run all these numbers through your head, keep in mind that, like many of us, you may find having the first kid to be so much fun that you decide to have a 2nd and a 3rd.

In any case, you'll be far ahead if you've set aside anything now.

Good luck and I hope you and the spouse enjoy parenthood as much as we have.

[LOL!]

I think if you took a poll around here, you would probably find that folks who went to college did not have their parents pay for the full ride. In fact, I would bet that more than 50% of the folks here had their parents pay less than 50% of the total cost.

I think that it is only in the last 10 years that the financial media have tried to make it another obligation that one should save and pay for their kids' college. Indeed, perhaps all these uber-savers parents have contributed to the higher inflation rate for college. As soon as there is more money earmarked for some expenses, the provider of that expense just increases the prices to what the market will bear.

[Independent]

Using I-bonds is a neat idea because the tax angle gives you a decent return on an inflation-indexed investment.

I'll bet that you will have over-funded the undergraduate costs. If you are retired and your kids get into "elite" colleges there will be significant financial aid.

Of course, by then kids will probably need 6 years of college for an entry-level job, so you'll use the money for grad school. (I think that's really silly public policy, but we can debate that in a different thread.)